The euro experienced a sharp decline on Monday as political instability in France heightened concerns about the country’s fiscal future. This turmoil comes amid a robust U.S. dollar supported by strong economic data, painting a contrasting picture for the two currencies.
The euro dropped 1% to $1.0469, marking its steepest daily loss since early November. Investors were spooked by the risk of a government collapse in France, where far-right National Rally (RN) leader Jordan Bardella hinted at backing a no-confidence motion. This move threatens to derail budget negotiations and delay efforts to reduce France’s growing deficit. Marine Le Pen, a leading RN figure, has given Prime Minister Michel Barnier a deadline to meet her party’s demands.
Investor sentiment toward French debt also soured, with the spread between French and German 10-year bond yields widening by 7.6 basis points to 87.3 basis points. This figure approached levels not seen since the eurozone debt crisis in 2012.
On the other side of the Atlantic, the U.S. dollar gained strength following positive manufacturing data. The Institute for Supply Management (ISM) reported a rise in its manufacturing PMI to 48.4 in November, signaling improving conditions. S&P Global’s manufacturing PMI also showed growth, reflecting robust factory orders and easing input costs.
Federal Reserve Governor Christopher Waller, however, signaled the possibility of a rate cut at the December 17–18 meeting, despite the strong economic data. Waller emphasized that monetary policy remains restrictive and suggested a rate cut wouldn’t significantly alter the Fed’s stance. Following his comments, market expectations for a December rate cut rose to 79%, up from 66% last week.
The U.S. dollar index, which measures the currency against a basket of major peers, rose 0.3% to 106.33. Meanwhile, the greenback held steady against the yen at 149.37 after a challenging week for the currency.
Looking ahead, investors are eyeing the U.S. payroll report set for release on Friday. Forecasts suggest an addition of 195,000 jobs in November, with the unemployment rate expected to inch up to 4.2%.
As political uncertainty looms in Europe and U.S. economic data outperforms, the euro faces further pressure while the dollar solidifies its position as a haven for investors.
